Business sentiment among Hong Kong small and medium enterprises rose to a two-year-high for the second quarter of 2021, buoyed by a brighter global economic outlook and the rollout of vaccination programs in different countries, according to a new survey.

The forward-looking Standard Chartered Hong Kong SME Leading Business Index jumped to 42.2 for the second quarter, up 9.8 from the previous period, the survey’s largest recorded quarterly increase.

Confidence towards in the global economy, in particular, surged significantly to 43.6 points from 19.9 in the first quarter. 

The comeback was mainly due to external factors, such as the accelerated vaccination rollout in many countries, the robust economic recovery in the Chinese mainland as well as the stimulus package unveiled in the United States, including tax incentives and significant spending for families and infrastructure, Kelvin Lau, senior economist at Standard Chartered Bank Greater China, said at a press conference on Thursday. 

Looking ahead, 59 percent of participants held a positive or neutral perspective on the global economy, up 31 percent from the previous quarter

“The latest set of results were very encouraging… reflecting a clear reduction in contractionary pressure on the economy,” Lau said. 

Although the revival was mainly caused by external factors, domestic sectors also enjoyed spillover benefits, he said. 

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“More domestically oriented respondents also felt more upbeat over the past quarter, possibly due to the unwinding of social distancing measures since February. In particular, the index was able to capture the recent warming up of the residential property market, as evident by the 16-point rise in the ‘Real Estate’ sub-index,” Lau added, noting that the positive transition has translated into better sales and profit expectations.

Looking ahead, 59 percent of participants held a positive or neutral perspective on the global economy, up 31 percent from the previous quarter.

“Even though the overall index has remained below 50, this quarter has seen a sharp upturn when compared with the last quarter,” said Edmond Lai, chief digital officer of the Hong Kong Productivity Council.

Despite the stronger rebound in business sentiment, Lau said the overall economic recovery will be gradual and long-term.

“As long as the indices stay below the 50-neutral mark across industries, the economic performance will stand at below satisfactory compared to pre-pandemic levels,” Lau said. He suggested that rising cost pressure could remain a key challenge for most SMEs, with 58 percent of the respondents expecting an increase of raw material costs in the second quarter.

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The rising costs came after signs of inflation in the Chinese mainland and the United States against the backdrop of economic rebound from the COVID-19 pandemic, Lau said. “However, it’s unlikely to evolve into a continual trend and its influence to the prices will be limited to manufacturing sector. For ordinary consumers in Hong Kong, the impact will be rather limited.”

The Standard Chartered Hong Kong SME Leading Business Index is a quarterly survey to gauge business sentiment and the forthcoming industrial climate. The Index comprises five areas, including local SMEs' outlook on their business condition, profit margin, investment sentiment, recruitment sentiment, and global economy for the next quarter. The survey for the second quarter was conducted among 805 local SMEs by the Hong Kong Productivity Council in March and sponsored by Standard Chartered Hong Kong.